FCA confirms plans to protect access to cash
The UK’s financial landscape is undergoing a transformation, with the increasing digitisation of payments and the steady decline of physical cash usage.
However, amidst these sweeping changes, the Financial Conduct Authority (FCA) has stepped in to ensure that reasonable access to cash withdrawal and deposit services is maintained across the country.
This plan aims to safeguard the needs of the three million people who continue to rely on cash, as well as the numerous small businesses that still require a physical means to securely deposit their daily takings.
In response to the powers granted by Parliament, the FCA has established a new regulatory regime to address the evolving dynamics of cash access in the UK. This regime mandates that designated banks and building societies assess and fill any significant gaps in local cash access that could impact consumers and businesses.
The FCA’s executive director of consumers and competition, Sheldon Mills, emphasises the importance of this initiative, stating, “Three million people continue to rely on cash, even as digital payments become more popular. And many small businesses still need somewhere to safely deposit their takings each day.”
Under the new rules, banks and building societies designated by the government must undertake a thorough assessment of cash access within their local communities. This includes understanding whether additional cash services are needed when changes are made to existing local services.
Furthermore, these financial institutions are required to respond to requests from local residents, community organizations, and representative groups, who can now request an assessment of potential gaps in local cash access.
Where significant gaps in cash access are identified, the designated banks and building societies are obligated to deliver reasonable additional cash services. These measures can include the establishment of banking hubs, the installation of ATMs (including deposit ATMs), and the utilisation of Post Office facilities.
The FCA’s powers, however, do not prevent the closure of bank branches, but they will have an impact where such closures leave substantial gaps in local cash access.
In response to feedback received during the consultation process, the FCA has made several adjustments to the initial rules. These include extending the period for banks and building societies to carry out cash access assessments, providing local communities with more time to make their case.
Additionally, firms will be able to review the provision of identified cash services after a two-year period, allowing for adaptations to changing circumstances.
To better understand the dynamics of cash reliance, the FCA has published research on the demographic and socioeconomic factors associated with the continued use of cash in the UK.
The findings indicate that being in a low-income household (less than £15,000 per year) and having low digital capability or access are the strongest predictors of reliance on cash.
The government has designated a total of fourteen banks and building societies to deliver the new cash access system. These firms are now responsible for ensuring that reasonable access to cash withdrawal and deposit services is maintained across the UK, in line with the FCA’s regulatory requirements.
The FCA’s new rules do not apply to any cash access service closures that have already been announced and are set to take place before the 18 September 2024 implementation date.
However, the regulator has emphasized that firms should not rush through closures before this date. Under the FCA’s existing guidance (FG22/6), firms are required to communicate branch and ATM closures to customers at least 12 weeks in advance.
The FCA acknowledges the significant innovation and change that has occurred in the payments landscape, driven by the increasing adoption of digital services and payment options.
While these advancements have made life more convenient for many, the ability to withdraw cash remains vital for a substantial portion of the population, particularly those with vulnerable characteristics and small businesses.
As part of its ongoing work on access to cash, the FCA, in collaboration with the Payment Systems Regulator (PSR), gathers and updates data on the geographical coverage of cash access points across the UK on a quarterly basis.
This analysis provides insights into the proportion of the population living within various distances of different types of cash access points, including brick-and-mortar branches, mobile bank branches, ATMs, and Post Office facilities.
The FCA’s latest analysis for the second quarter of 2023 reveals that 97.4% of the UK’s urban population and 98.2% of the rural population currently live within 1 mile and 3 miles, respectively, of a free-to-use cash access point that offers deposit services.
Furthermore, 99.3% of the UK’s urban population and 98.6% of the rural population are within 1 mile and 3 miles, respectively, of a free-to-use cash access point that offers withdrawal services.
The FCA’s data also provides insights into other access characteristics, such as changes in branch opening hours and temporary closures. The analysis found an increase in the number of larger banks and building societies opening on Saturdays between 9 am and 12 pm, as well as on weekdays between 3 pm and 4:30 pm. Additionally, there was a decrease in the number of temporary closures of larger bank branches, from 7.4% in 2023 Q1 to 5.5% in 2023 Q2.
The FCA’s new regulatory regime for access to cash represents a critical step in ensuring that the UK’s transition to a more digitalized payments landscape does not leave behind those who continue to rely on physical currency.
By mandating banks and building societies to assess and address significant gaps in local cash access, the regulator aims to maintain reasonable provision of cash withdrawal and deposit services across the country. This approach, tailored to the needs of consumers and businesses, underscores the FCA’s commitment to fostering an inclusive and resilient financial system.